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Staggered wages, inflation, and discounting

Bonini, Patricia and Da Silva, Sergio (2007): Staggered wages, inflation, and discounting.

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Abstract

In the literature of staggered wages (Taylor, 1979, 1980; Blanchard, 1986; Ball and Cecchetti, 1991) the discount factor is neglected in the workers’ loss function. Yet discounting is to be viewed as an extra piece of micro-foundation with implications for discretionary monetary policy. We revisit the issue and show that discounting in the model of staggered wages actually lowers the time consistent steady inflation.

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